4 ms·

1%-2% per month doesn't pass the smell test for something stable. You're taking on some risk, it's just hidden from you. And thats the worst kind of risk to tak

by bko 4y ago

1%-2% per month doesn't pass the smell test for something stable. You're taking on some risk, it's just hidden from you. And thats the worst kind of risk to take on. Just look at the extremes. The big risk here is impermanent loss which is inevitable unless the relative price remains stable. Or they could both go down and relative to fiat you'd be down as well

rglullis 4y ago
Did I say it was stable? > The big risk here is impermanent loss. How would you get impermanent loss on a pair of tokens that are both pegged to the dollar?
- bko 4y ago
  The peg could be broken as we've seen with a number of stable coins so far this year. I've explained in previous comments why algo-stablcoins are doomed to fail. The traditional stable coins require a lot of trust and I'm not sure how they fall in the capital structure of the company. Even if it were backed 1:1 with fiat, if someone like Coinbase goes into bankruptcy, is the pool of money for their stable coins protected?
  - rglullis 4y ago
    > if someone like Coinbase goes into bankruptcy, is the pool of money for their stable coins protected? Theoretically, yes. Circle's reserves are separated from Coinbase. So one could be worried about their assets if they were being held by Coinbase, but if you are holding USDC on your own Circle should still be able to redeem USDC for dollars.
- bobthepanda 4y ago
  Pegs exist until they break. Mightier institutions than crypto coins have been brought to their knees trying to defend a peg.
  - rglullis 4y ago
    These mightier institutions were trying to defend a peg while dealing with fractional reserve and/or a deficit in the trading sheet. A stabletoken like USDC is not any of that. It is (or should be) backed 1:1 by dollars, and the institution holding USDs should be profiting only for the service provided, not by re-investing the money.
    - jcranmer 4y ago
      > It is (or should be) backed 1:1 by dollars, and the institution holding USDs should be profiting only for the service provided, not by re-investing the money. Should be, perhaps. But it does not appear to be. Tether's statements indicate that they are very much in the fractional reserve game, and while Circle has removed the asset breakdown from their attestations, the last one I found that had it indicated that they were also playing the fractional reserve game. Given that the two largest stablecoins have admitted to playing the fractional reserve game, are you willing to admit that the peg turn out to only be as solid as, say, the GBP/ESM peg was?
      - rglullis 4y ago
        If you have any attestation from USDC saying that they are not holding enough USD or commercial paper to back their reserves, you can make a lot of money by a combination of (a) legal action against them (which is easier to do than compared with Tether) and (b) shorting it, as there are a lot of institutional investors who would be interested in breaking them.
        jcranmer 4y ago
        I said USDC has said that is using fractional reserves. I did not say that it is insolvent. (That said, I do believe that USDC and USDT are likely to be insolvent, primarily on the basis that assets equaling 100% of liabilities to three significant figures is suspiciously precise. More likely for USDT, as their attestation also notes that they're using non-standard accounting practices, although USDC gets a ding for not providing any breakdowns.) > (a) legal action against them (which is easier to do than compared with Tether) What standing has anyone to sue USDC right now? You need to have suffered damages, and so long as the peg has maintained, damages have not yet occurred. > (b) shorting it, as there are a lot of institutional investors who would be interested in breaking them. How do you short them? You'd need to acquire likely >10 billion of USDC to sell without providing 10 billion of liquid USD to Circle or any of its confederates that they could use against you.
- duskwuff 4y ago
  > How would you get impermanent loss on a pair of tokens that are both pegged to the dollar? A "peg" for a cryptocurrency or token is a promise, not a guarantee.
  - rglullis 4y ago
    Then your concern is not about impermanent loss, but simply of the token's value going to zero.

by bko 4y ago

rglullis 4y ago

Did I say it was stable? > The big risk here is impermanent loss. How would you get impermanent loss on a pair of tokens that are both pegged to the dollar?

bko 4y ago
The peg could be broken as we've seen with a number of stable coins so far this year. I've explained in previous comments why algo-stablcoins are doomed to fail. The traditional stable coins require a lot of trust and I'm not sure how they fall in the capital structure of the company. Even if it were backed 1:1 with fiat, if someone like Coinbase goes into bankruptcy, is the pool of money for their stable coins protected?
- rglullis 4y ago
  > if someone like Coinbase goes into bankruptcy, is the pool of money for their stable coins protected? Theoretically, yes. Circle's reserves are separated from Coinbase. So one could be worried about their assets if they were being held by Coinbase, but if you are holding USDC on your own Circle should still be able to redeem USDC for dollars.
bobthepanda 4y ago
Pegs exist until they break. Mightier institutions than crypto coins have been brought to their knees trying to defend a peg.
- rglullis 4y ago
  These mightier institutions were trying to defend a peg while dealing with fractional reserve and/or a deficit in the trading sheet. A stabletoken like USDC is not any of that. It is (or should be) backed 1:1 by dollars, and the institution holding USDs should be profiting only for the service provided, not by re-investing the money.
  - jcranmer 4y ago
    > It is (or should be) backed 1:1 by dollars, and the institution holding USDs should be profiting only for the service provided, not by re-investing the money. Should be, perhaps. But it does not appear to be. Tether's statements indicate that they are very much in the fractional reserve game, and while Circle has removed the asset breakdown from their attestations, the last one I found that had it indicated that they were also playing the fractional reserve game. Given that the two largest stablecoins have admitted to playing the fractional reserve game, are you willing to admit that the peg turn out to only be as solid as, say, the GBP/ESM peg was?
    - rglullis 4y ago
      If you have any attestation from USDC saying that they are not holding enough USD or commercial paper to back their reserves, you can make a lot of money by a combination of (a) legal action against them (which is easier to do than compared with Tether) and (b) shorting it, as there are a lot of institutional investors who would be interested in breaking them.
      - jcranmer 4y ago
        I said USDC has said that is using fractional reserves. I did not say that it is insolvent. (That said, I do believe that USDC and USDT are likely to be insolvent, primarily on the basis that assets equaling 100% of liabilities to three significant figures is suspiciously precise. More likely for USDT, as their attestation also notes that they're using non-standard accounting practices, although USDC gets a ding for not providing any breakdowns.) > (a) legal action against them (which is easier to do than compared with Tether) What standing has anyone to sue USDC right now? You need to have suffered damages, and so long as the peg has maintained, damages have not yet occurred. > (b) shorting it, as there are a lot of institutional investors who would be interested in breaking them. How do you short them? You'd need to acquire likely >10 billion of USDC to sell without providing 10 billion of liquid USD to Circle or any of its confederates that they could use against you.
duskwuff 4y ago
> How would you get impermanent loss on a pair of tokens that are both pegged to the dollar? A "peg" for a cryptocurrency or token is a promise, not a guarantee.
- rglullis 4y ago
  Then your concern is not about impermanent loss, but simply of the token's value going to zero.